Drug Company Stakes Future on Medicines from Marijuana Compounds

Iselin, N.J. - Could a synthetic, chemical cousin of marijuana's active
ingredient be the first drug that protects the brain from devastating
damage common after a serious brain injury? Pharmos Corp. is betting on it.

The Iselin-based biopharmaceutical company is conducting late-stage human
tests of its compound, called Dexanabinol, and the U.S. Food and Drug
Administration has granted fast-track status for review of the drug when
testing is completed.

That's because there is currently no medication specifically approved to
treat severe damage to the brain from car crashes, sports injuries, falls
or violence.

While the initial skull fracture and brain bruising can be severe, the
bigger problem can come later: Dangerous swelling and the release of
chemicals that kill healthy brain cells near the injured ones cause more
severe, long-lasting damage to those who survive.

Current treatments are only supportive - keeping up blood pressure,
emergency surgery to remove blood clots in the brain and drilling a hole in
the skull to release dangerous pressure inside.

"This drug is supposed to significantly increase chances of resuming your
life," said Gad Riesenfeld, president of Pharmos. "We believe there is no
drug that could succeed except this one."

According to the Centers for Disease Control and Prevention, there are
roughly 5 million Americans living with disabilities caused by brain
injury.! About 1.5 million head injuries occur each year, half from motor
vehicle accidents, and about 50,000 victims die. Another 1.25 million have
mild injuries that require no hospital treatment or just ER care.

About 300,000 are admitted to hospitals, usually with serious swelling in
the brain. Some 90,000 have severe brain injury and are in a coma; most can
recover some function with rehabilitation.

That group is the one targeted in Pharmos' current testing of Dexanabinol,
which does not have the psychotropic effects of marijuana.

Doctors at more than 60 hospitals in the United States and Europe must
quickly obtain permission from victims' relatives to include them in the
study, in which half get an injection of Dexanabinol and the other half an
inert substance. The patients' recovery is then monitored for six months.
Testing of about 860 patients should conclude late next year.

Drugs previously tested for traumatic brain injury have all failed, but the
early test resu! lts from Dexanabinol are "extremely encouraging and very
promi! sing," s aid Dr. Gregory O'Shanick, national medical director for
the Brain Injury Association of America.

Dexanabinol is the first drug tested that appears to reduce inflammation,
prevent a lethal influx of chemicals that kill brain cells near the injured
area, and capture free radicals that also kill brain cells.

"If Dexanabinol does it, then it would be sort of a home run," said Dr. Raj
Narayan, chairman of the American Brain Injury Consortium, a group of
researchers that along with European counterparts are coordinating testing.

Narayan, who is chairman of neurosurgery at the University of Cincinnati,
noted that no safety problems have shown up in testing so far.

However, O'Shanick cautioned that patients are only being followed for six
months, and neurological problems from brain injury endure much longer.
Those include seizures, headaches, movement and vision disorders and severe
personality changes, among others.

O'Shanick said he thinks Dexanabinol will limit the ca! scade effect after
initial injury, which should bring more improvement to recovering patients
as they go through rehabilitation such as speech, occupational and
cognitive therapy.

"This will not cure traumatic brain injury," said O'Shanick, who stresses
that many injuries can be prevented by using seat belts and wearing
protective helmets during sports activities.

Analyst David Bouchey, vice president of health care research at C.E.
Unterberg, Towbin, thinks Dexanabinol could be approved by mid-2006 if the
current testing proves it is effective.

Bouchey estimates worldwide sales could hit about $550 million in 2009, and
could go higher if the drug is later approved for moderate and mild head
injury or other conditions. Pharmos executives estimate the market could
eventually exceed $1 billion annually.

"The science behind this is very good. The way they developed it has been
impeccable," with strong early results and a well-designed late-stage test
that should prove ! definitively how well Dexanabinol works, Bouchey said.

Pharm! os also is testing synthetic cannabinoid compounds as possible
treatments for the memory and thinking problems common after heart bypass
surgery, for nerve pain and for other degenerative and inflammatory diseases.

Unlike most small drug companies, Bouchey noted, Pharmos is run by
executives who have twice before shepherded an experimental drug through
testing and gotten it approved by the FDA. Both were ophthalmology drugs,
and Pharmos sold them to contact lens maker Bausch & Lomb in a deal that
continues to bring Pharmos money, he said, before switching the company's
focus to neurology drugs.

A third ophthalmology drug for which Pharmos did the early testing before
selling the rights to Bausch & Lomb is being reviewed by the FDA; if
approved, B&L would pay Pharmos up to $20 million.

"It's very rare that you find a developmental-stage biotechnology company
where the management has been there and done that," Bouchey said.

He said Pharmos has enough cash to fund operations fo! r about 1 1/2 years,
plus the company this month filed papers with the Securities and Exchange
Commission allowing it to sell up to $50 million in stock and other securities.

While the company is losing about $17 million a year, Boucher expects it to
make a profit of about $15 million in 2005, with revenues and net income
increasing steadily starting in 2007.